Insurer Agrees to Pay Doctors $198 Million

By Ceci Connolly
Washington Post Staff Writer
Tuesday, July 12, 2005

WellPoint Inc., the nation's largest health insurer with nearly 29 million members, announced yesterday a $198 million settlement with physicians and medical societies designed to reduce the number of disputes over what care is medically necessary and alleged unfair reductions in payments to doctors.

The agreement, the largest of its kind, will mean a modest back payment to about 700,000 doctors and, more important, significant changes in the way the managed-care company pays medical claims in the future. Physicians hailed the settlement as one of the first real victories in their decades-long struggle with managed-care companies over who decides what tests, therapies and surgeries a patient receives.

"The insurance company will no longer be in the exam room with the physician and patient," said Michael Sexton, president of the California Medical Association. "The patient will get the appropriate care they need, when they need it."

Industry analysts predicted WellPoint will increase premiums to cover some of the cost, valued at more than $450 million over several years, including lawyers' fees, payments to doctors and the cost of new billing systems. But WellPoint spokesman James Kappel said the firm may be able to hold down premiums through modernizing and other efficiencies.

Filed yesterday in U.S. District Court in Miami, the agreement is the fifth to emerge from a massive class-action suit, consolidated in 2000, targeting 10 large managed-care providers. The doctors and about a dozen state medical associations accused the health plans of using a host of techniques to wrongly reduce physician payments. The physicians complained that by refusing to cover certain tests and treatments or underpaying for services, the practices had a detrimental effect on patient care.

"The agreement does not imply any of our operational practices were improper," Kappel said. "We felt it was very important to put this litigation behind us and focus on what matters most -- serving our customers."

Insurers complained that doctors gamed the system by breaking down an office visit into several billable items. Both sides yesterday expressed hope the deal would bring a cease-fire.

"We've been functioning as though we're enemies in a managed-care cold war," said California Medical Association chief executive Jack Lewin. "We have wasted a lot of money and energy fighting each other."

WellPoint, which recently merged with Anthem Inc., issued a statement from chief executive Larry Glasscock that the deal is "a very important step in further collaborating with physicians." WellPoint has Blue Cross/Blue Shield subsidiaries in 13 states, including Anthem Blue Cross & Blue Shield of Virginia.

By settling, WellPoint -- along with Aetna, Cigna, Prudential and HealthNet in previous agreements -- avoided a protracted, expensive court fight. The five settlements, totaling more than $590 million in cash payments, include $40 million invested in nonprofit foundations dedicated to improving health care quality.

In practical terms, the agreement should result in faster, easier physician reimbursement for procedures as mundane as flu shots to complicated cancer therapies. It creates an independent appeal process for doctors whose claims are denied, requires insurers to notify doctors of the set reimbursement for each procedure and calls for an immediate end to "downcoding," in which the insurer pays for a lesser procedure at a lower rate than the physician billed.

For example, a doctor treating a patient with congestive heart failure would typically bill $90 for a "moderately complex follow-up visit" involving lab work, a full examination and changes in the patient's medication, said Bohn Allen, immediate past president of the Texas Medical Association. But the insurance company would automatically knock the claim down to a simple office checkup and pay just $45, he said.

The appeal process to fight downcoding and denied claims took time and money, Allen said. "So the doctor was either forced to reduce services or quit seeing the patient" and focus instead on others with more generous coverage.

Several doctors said they were especially pleased that the five settlements change the definition of "medical necessity" in a way that returns more authority to the physician, rather than an insurance company bureaucrat.

Michael Greene, a family practitioner in Macon, Ga., said he recently treated a man suffering from severe migraines and spinal pain by injecting a local anesthetic into the back of his scalp, a procedure known as an occipital nerve block.

"It worked," he said. But the man's health plan rejected the claim, indicating the treatment was not medically necessary. Under the settlement, which must be approved by Judge Federico Moreno, Greene expects far fewer problems making those decisions.

In an interview, Kappel declined to respond to the allegations that WellPoint downcoded or used other systems to underpay physicians.

Nancy Chockley, president of the National Institute for Health Care Management Foundation, which is underwritten in part by health insurers, said most large health plans have been implementing many of the changes laid out in the settlements.

"This is going to cost consumers more," she said. "Medical costs will go up and they will be passed on."

But Archie Lamb, an Alabama lawyer who spearheaded the case, said underpaying physicians resulted in inferior care and more uninsured Americans.

"Nobody gains in a system where doctors are not being paid for the care they deliver," he said.

In the suit, the doctors argued that insurers violated the federal Racketeer Influenced and Corrupt Organizations Act, or RICO.

© 2005 The Washington Post Company